Retail Store owners say contraband tobacco hurts bottom line

It's not easy running a convenience store these days. The Atlantic Convenience Store Association says a variety of pressures are squeezing the bottom lines of independent stores and chains alike.

Those bottom-line pressures include lost sales thanks to the rise of contraband tobacco, hefty credit card fees, the need for increased store security, and increasing labour costs.

Glenn Sullivan, retail manager for North Atlantic, at one of the company's stores in St. John's. - Photo by Gary Hebbard/The Telegram

It's not easy running a convenience store these days. The Atlantic Convenience Store Association says a variety of pressures are squeezing the bottom lines of independent stores and chains alike.

Those bottom-line pressures include lost sales thanks to the rise of contraband tobacco, hefty credit card fees, the need for increased store security, and increasing labour costs.

To combat contraband tobacco, the Atlantic Convenience Store Association wants better enforcement and stiffer penalties for both the sellers and buyers of illegal cigarettes.

The estimated 658 convenience stores in the province are joining that battle.

"Certainly, it's a growing issue in the Atlantic area and in Newfoundland," said Glenn Sullivan, retail manager for North Atlantic.

"In the past year, the RCMP have made three major busts of contraband product on the west coast ... it came across on the ferry."

Thirty-eight gas stations throughout the province fly the North Atlantic banner, and all but a few include convenience stores.

Cathy Ivany is the manager of Stockwood's Bakery and Deli, an independent store in St. John's.

She said stores can't compete with contraband tobacco.

"For a consumer to purchase a carton of cigarettes from us, you're looking at $80-odd to $90, plus tax. Whereas they can go buy contraband - 200 cigarettes which is the equivalent of a carton - for about $20."

If the stores lose tobacco sales, she said the government also loses revenue.

Contraband tobacco is defined as products that do not pay federal or provincial taxes, have no health warning labels, and do not comply with product testing and manufacturing rules.

The products are often manufactured on native reserves or arrive from China, according to the convenience store association.

To raise awareness of their concerns, the association invited St. John's South MP Siobhan Coady to work the counter at a local convenience store today.

She'll spend two hours at a North Atlantic store in Mount Pearl.

"I'll be bagging product, getting product and talking to customers. ... I might have to mop a few floors, but I've got lots of experience in that."

Coady's purpose is two-fold: getting more information about the challenges facing store owners and talking to customers and constituents.

"They have a major concern with contraband tobacco ... the other one is the credit card and debit card issues they're facing and the associated costs."

As more people use credit cards, stores must pay a larger proportion of fees to credit card companies. It's a percentage of each transaction, and varies with the size of the store.

"The typical fee that most operators pay is somewhere in the neighbourhood of two per cent," said Sullivan.

Coady said she'll raise their concerns in Ottawa.

Mike Hammoud, president of the Atlantic Convenience Stores Association, hopes other politicians across the country will follow Coady's lead.

"We need the MPs and provincial governments to recognize the problems and to, more importantly, start taking some action."

Hammoud's family has been in the convenience-store business for almost 40 years, operating seven stores in the Halifax and south shore areas in Nova Scotia.

Elsewhere, the contraband tobacco is driving stores out of business.

It's a smaller issue in the Atlantic provinces, and Hammoud wants to make sure it stays that way.

In Ontario, he said the use of contraband tobacco has almost doubled from 2006 to 2008 - accounting for 48.6 per cent of tobacco bought in that province.

In Quebec, it's 40 per cent.

"We can't afford those numbers here," said Hammoud.

Tobacco sales are among the top-three sales items for convenience stores, along with gasoline and lottery tickets.

"All three of those products are either regulated by government or controlled by government."

Hammoud said profit margins are not very high on any of those products.

But they do generate foot traffic.

Store owners count on customers to also pick up more profitable products, such as milk, coffee or mints, along with their smokes, gas or tickets.

"The top-three sellers bring the people in the door," said Hammoud. "That's why we feel that contraband is such a threat to us ... it's the other add-on sales that you lose."

The association is carrying out "butt studies" to assess how big a problem illegal cigarettes are becoming.

Cigarette butts have been collected from the grounds of public buildings, stores and high schools at 15 locations throughout the province. They'll be analyzed to see how many are contraband.

Sullivan said the biggest issue facing convenience stores in the province is simple survival.

"In some parts of Canada, we're seeing 10 per cent of convenience stores closing every year. In Newfoundland last year, the number of stores declined by six per cent."

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Tom

July 02, 2010 - 13:27

How about reducing the tax on tobacco to get us to buy legal product. The government is the cause of contraband, and the government can be the resolution. Every time a budget rolls around, they add more tax, and more of us get fed up with it and buy illegally due to it being 1 5th the cost. Seriously. Drop the tax $30.00 a carton and we might start buying legal tobacco. Before everybody starts saying thats a bad plan, think about it. The tax on tobacco is so high right now almost 50% of tobacco sold is contraband so the government looses a lot of tax. When the price of a legal carton is cheaper, more legal product is sold, closer to 80% and even with less tax, the government makes more. So your choice. Tax high and we buy black market. Tax low, and we buy legal product. Either way I will smoke. It is up to you to convince me to buy legal product and there is no chance of that as long as a carton is almost $100.00. Let me know when it is back around $60.00.

Tom from NL writes: How about reducing the tax on tobacco to get us to buy legal product. The government is the cause of contraband, and the government can be the resolution. Every time a budget rolls around, they add more tax, and more of us get fed up with it and buy illegally due to it being 1 5th the cost. Seriously. Drop the tax $30.00 a carton and we might start buying legal tobacco. Before everybody starts saying thats a bad plan, think about it. The tax on tobacco is so high right now almost 50% of tobacco sold is contraband so the government looses a lot of tax. When the price of a legal carton is cheaper, more legal product is sold, closer to 80% and even with less tax, the government makes more. So your choice. Tax high and we buy black market. Tax low, and we buy legal product. Either way I will smoke. It is up to you to convince me to buy legal product and there is no chance of that as long as a carton is almost $100.00. Let me know when it is back around $60.00.
==================================

Your moniker could easily be Tom FOOLery.

Logic such as yours is astounding!

If your going to buy a contraband product, you deserve whatever consequences which arise, be that a problem associated which cheap ciggies from China or a huge fine.

I saw on the news yesterday that a man was fined $1 million dollars for smuggling cigs, but since he can't pay the fine he has to pay $200 for life(it would take 500 years). So what would the suggested fine be $2 million and 1000 years. Well researched !

How about reducing the tax on tobacco to get us to buy legal product. The government is the cause of contraband, and the government can be the resolution. Every time a budget rolls around, they add more tax, and more of us get fed up with it and buy illegally due to it being 1 5th the cost. Seriously. Drop the tax $30.00 a carton and we might start buying legal tobacco. Before everybody starts saying thats a bad plan, think about it. The tax on tobacco is so high right now almost 50% of tobacco sold is contraband so the government looses a lot of tax. When the price of a legal carton is cheaper, more legal product is sold, closer to 80% and even with less tax, the government makes more. So your choice. Tax high and we buy black market. Tax low, and we buy legal product. Either way I will smoke. It is up to you to convince me to buy legal product and there is no chance of that as long as a carton is almost $100.00. Let me know when it is back around $60.00.

Tom from NL writes: How about reducing the tax on tobacco to get us to buy legal product. The government is the cause of contraband, and the government can be the resolution. Every time a budget rolls around, they add more tax, and more of us get fed up with it and buy illegally due to it being 1 5th the cost. Seriously. Drop the tax $30.00 a carton and we might start buying legal tobacco. Before everybody starts saying thats a bad plan, think about it. The tax on tobacco is so high right now almost 50% of tobacco sold is contraband so the government looses a lot of tax. When the price of a legal carton is cheaper, more legal product is sold, closer to 80% and even with less tax, the government makes more. So your choice. Tax high and we buy black market. Tax low, and we buy legal product. Either way I will smoke. It is up to you to convince me to buy legal product and there is no chance of that as long as a carton is almost $100.00. Let me know when it is back around $60.00.
==================================

Your moniker could easily be Tom FOOLery.

Logic such as yours is astounding!

If your going to buy a contraband product, you deserve whatever consequences which arise, be that a problem associated which cheap ciggies from China or a huge fine.

I saw on the news yesterday that a man was fined $1 million dollars for smuggling cigs, but since he can't pay the fine he has to pay $200 for life(it would take 500 years). So what would the suggested fine be $2 million and 1000 years. Well researched !

HBG

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